Are You Always Broke? Maybe This Is Why
Are you one of those folks who always works hard and saves regularly, yet still feel like you can’t get ahead? Maybe you have a decent salary and good benefits, and you try and stick to your budget as much as you can - but you feel like the prospect of retirement is worlds away? Maybe you’re wondering, how come I never seem to have enough money for the things I want to do without sacrificing my financial future?
Sure, the last few years have been challenging. Many folks lost their jobs or saw their hours cut back during the COVID pandemic. Inflation spiked last year and the price of many goods and services have not returned to “normal” levels. Taken all together it might seem logical that many of us are feeling pinched for cash.
Take Jake and Sarah, the son and daughter-in-law of one of my neighbors, Ed. According to Ed, Jake has approached him and his wife, Janice, on a number of occasions for financial assistance. These are typically short-term loans they’re asking for, and Jake and Sarah usually pay them back promptly, so Ed isn’t worried about being stiffed. But as we sat down for a beer and a snack last week, he was puzzled. You see, Jake and Sarah are not what he considers to be deadbeats. They both work full-time and make a fairly good living. He was concerned that their financial habits may be creating problems for them, unnecessarily. He didn’t know all the ins and outs of their situation, but it seemed to him that they needed to do things differently for them to become truly financially independent.
Hmmmm . . . I got to thinking.
This reminded me of a recent video segment from Dave Ramsey, titled, “This Is Why You’re Still A Poor Person₁.,” Dave Ramsey is a self-described financial guru, author and purveyor of financial advice and has a large following due to his common sense approach to finances. I don’t necessarily follow him closely nor do I agree with everything he says, but once in a while I connect with his guidance because it just makes good sense.
In this recent video, he spoke about specific financial behaviors of consumers, contrasting those of the lower and middle classes with some wealth-building tactics of the wealthy. For example, in response to a caller on his show, he advised her not to take out the equity in her home to finance her basement remodeling and deck renovation as she planned. Dave feels strongly about debt, and in particular the difference between “good” debt and “bad” debt. In this case, he suggested that she instead attempt to save up for her planned home improvements and leave her equity alone, emphasizing the fact that leveraging home equity for this purpose would be robbing her financial future.
It makes sense then that he heavily criticizes the use of payday loans, pawn shops and title loans for those struggling financially. As an example, he mentioned the allure of the lottery in poorer communities, with a staggering “78 percent of lottery tickets are sold in poor zip codes.” Seems to me that this is just a tax on the poor.
Dave went on to highlight other behaviors of the middle-class in contrast to the wealthy. For example, he pointed to things like high car payments, credit card rewards maximization and home equity loans as common yet unhelpful in achieving financial independence. Even worse is the damaging impact of interest-only loans, illustrating them as a never-ending cycle of debt.
What I found particularly interesting were his observations about the financial decision-making of wealthy individuals. According to Ramsey, “Rich people don’t ask how much down and how much a month; they avoid payments.” This statement highlights a significant difference between the mindset and subsequent financial habits of those who are successful at growing their wealth and those who struggle.
The idea here is to adopt behaviors like this from the wealthy – things like paying cash whenever possible, buying used cars instead of flashy status symbols, and saving up for vacations and other events instead of financing them. By making moves like this, even those with modest incomes can enjoy the benefits of reaching their financial goals.
Dave Ramsey also recently said₂, “A loan between family members, or even friends, isn't help—it's a trap for both parties. Family dinners and get-togethers are different when you're sitting down to eat with your creditors instead of just friends or family. If you want to give money to friends or family (and you can afford it), just give them the money. But make sure it’s a gift with no strings attached, not a loan.”
Naturally, Ed found this quote particularly interesting. And while he insisted that he doesn’t mind helping his son’s family out from time to time, he realized the significant benefits of adopting better money habits. He understands that if wants to speak with Jake and Sarah about potentially changing their money behavior it will be a sensitive topic – especially knowing how much Jakes likes his brand new (financed) pick-up truck. But he believes that he can approach them with the video as a conversation starter. I wish him luck!
You know folks, I will be sending this column to my three young ladies.
So as always - be vigilant and stay alert, because you deserve more!
Have a great week.
Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA.
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